-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CmTh/0YJqeqYV8+BmkTTdoHFL2aVEsCTxXsZ9ExREim+SRXq5vExOAXCRplimabX 0j1OyTNUl7MfA3PvKGIoHw== 0000803026-96-000018.txt : 19961118 0000803026-96-000018.hdr.sgml : 19961118 ACCESSION NUMBER: 0000803026-96-000018 CONFORMED SUBMISSION TYPE: 10-Q CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROMETHEUS INCOME PARTNERS CENTRAL INDEX KEY: 0000803026 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 770082138 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16950 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: 350 BRIDGE PARKWAY CITY: REDWOOD CITY STATE: CA ZIP: 94065-1517 BUSINESS PHONE: 4155965300 MAIL ADDRESS: STREET 2: 2600 CAMPUS DRIVE SUITE 200 CITY: CAMPUS DRIVE STATE: CA ZIP: 94403 FORMER COMPANY: FORMER CONFORMED NAME: PROMETHEUS DEVELOPMENT INCOME PARTNERS DATE OF NAME CHANGE: 19861229 10-Q 1 FORM 10-Q FOR 9/30/96 - ------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___ FORM 10-Q Quarterly Report Under Section 13 or 15(d) Of the Securities Exchange Act of 1934 For Quarter Ended September 30, 1996 Commission File No. 000-16950 Prometheus Income Partners, a California Limited Partnership (Exact name of registrant as specified in its charter) California 77-0082138 (State or other jurisdiction of (IRS Employer ID Number) incorporation or organization) 350 Bridge Parkway Redwood City, California 94065-1517 (Address of principal (zip code) executive offices) Registrant's telephone number, including area code: (415)596-5300 - ------------------------------------------------------------------------- (Former name, address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [] - -------------------------------------------------------------------------- PART I: FINANCIAL INFORMATION Item 1. Condensed Financial Statements The accompanying unaudited financial statements should be read in conjunction with the Form 10-K filed by the Partnership for the year ended December 31, 1995. These statements have been prepared in accordance with the instructions of the Securities and Exchange Commission Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information does not include any adjustments for the capitalization of any improvements which are done only in conjunction with the year-end financial statements. While the financial information is unaudited, in the opinion of the General Partner, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. PROMETHEUS INCOME PARTNERS a California Limited Partnership BALANCE SHEETS September 30, 1996 AND DECEMBER 31, 1995 (In Thousands, Except for Unit Data)
September 30, December 31, 1996 1995 (Unaudited) (Audited) ASSETS Real Estate: Land, buildings and improvements $ 29,288 $ 29,288 Accumulated depreciation (6,349) (5,938) -------- -------- 22,939 23,350 Cash 1,935 603 Deferred loan fees, net 99 163 Accounts receivable and other assets 31 56 -------- -------- Total assets $ 25,004 $ 24,172 ======== ======== LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Notes payable $ 24,870 $ 23,791 Payables and accrued liabilites 312 276 -------- -------- Total liabilities 25,182 24,067 -------- -------- General partner deficit (403) (404) Limited partners' capital 18,995 limited partnership units issued and outstanding 225 509 -------- -------- Total partners' capital (deficit) (178) 105 -------- -------- Total liabilities and partners' capital (deficit) $ 25,004 $ 24,172 ======== ======== The accompanying notes are an integral part of these financial statements.
PROMETHEUS INCOME PARTNERS a California Limited Partnership STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (In Thousands, Except for Per Unit Data)
1996 1995 (Unaudited) (Unaudited) REVENUES Rental revenues (including revenue from affilates of $185 and $0, respectively) $ 1,260 $ 1,117 Other income 39 28 Interest income 18 6 ------- ------- Total revenues 1,317 1,151 ------- ------- EXPENSES Interest 639 603 Operating and administrative 376 390 Depreciation and amortization 158 153 Payments to general partner and affiliates: Management fee 68 55 Operating and administrative 20 22 ------- ------- Total expenses 1,261 1,223 ------- ------- NET INCOME (LOSS) $ 56 $ (72) ======= ======= Net income (loss) per $1,000 limited partnership unit $ 3 $ (4) ======= ======= Number of limited partnership units used in computation 18,995 18,995 ====== ====== The accompanying notes are an integral part of these financial statements.
PROMETHEUS INCOME PARTNERS a California Limited Partnership STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (In Thousands, Except for Unit Data)
1996 1995 (Unaudited) (Unaudited) REVENUES Rental revenues (including revenue from affiliates of $299 and $0, respectively) $ 3,644 $ 3,164 Other income 96 81 Interest income 34 17 ------ ------ Total revenue 3,774 3,262 ------ ------ EXPENSES Interest 1,888 1,782 Operating and administrative 1,019 980 Depreciation and amortization 475 461 Payments to general partner and affiliates: Management fee 189 158 Operating and administrative 111 73 ------ ------ Total expenses 3,682 3,454 ------ ------ NET INCOME (LOSS) $ 92 $ (192) ====== ====== Net income (loss) per $1,000 limited partnership unit $ 5 $ (10) ====== ====== Number of limited partnership units used in computation 18,995 18,995 ====== ====== The accompanying notes are an integral part of these financial statements.
PROMETHEUS INCOME PARTNERS a California Limited Partnership STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (In Thousands)
1996 1995 (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 92 $ (192) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 475 460 Decrease (increase) in accounts receivable and other assets 25 (135) Deferral of mortgage interest 1,148 1,042 Increase in payables and accrued liabilities 36 152 ------ ------ Net cash provided by operating activities 1,776 1,327 ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES Principal reductions on notes payable (69) (69) Distribution to partners (375) (1,174) ------ ------ Net cash used for financing activities (444) (1,243) ------ ------ Net increase in cash 1,332 84 Cash at beginning of year 603 514 ------ ------ Cash at end of period $ 1,935 $ 598 ====== ====== The accompanying notes are an integral part of these financial statements.
PROMETHEUS INCOME PARTNERS a California Limited Partnership NOTES TO FINANCIAL STATEMENTS 1. THE PARTNERSHIP Prometheus Income Partners, a California Limited Partnership (the Partnership), was formed to construct, invest in, operate and ultimately sell two multi-family apartment projects, Alderwood Apartments (Alderwood) and Timberleaf Apartments (Timberleaf), located in Santa Clara, California. The General Partner is Prometheus Development Co., Inc., a California corporation. The financial information does not include any adjustments for the capitalization of any improvements which are done only in conjunction with the year-end financial statements. The financial information included herein at September 30, 1996 and for the three and nine months ended September 30, 1996 and 1995 is unaudited and, in the opinion of the General Partner, reflects all adjustments (which include only normal recurring accruals) necessary for a fair presentation of the financial position as of those dates and the results of operations for those periods. Management fees and payments to the General Partner and Affiliates represent compensation for services provided and certain expense requirements at cost, in accordance with the Partnership Agreement. The information in the Balance Sheets at December 31, 1995 was derived from the Partnership's audited annual report for 1995. Partnership profits, losses and distributions are allocated among the partners based on the provisions of the Partnership Agreement which generally provide for allocations to begin when the partners are admitted to the Partnership. 2. INCOME TAXES In accordance with federal and California income tax regulations, no income taxes are levied on the Partnership; rather, such taxes are levied on the individual partners. Consequently, no provision or liability for federal or California income tax has been reflected in the accompanying financial statements. 3. HARDBOARD SIDING The General Partner has learned that the same type of hardboard siding which was used at Alderwood and Timberleaf is failing to perform as expected in a number of projects in various parts of the United States, including a 370 unit apartment project that is managed by Maxim Property Management (Maxim), an Affiliate of the General Partner. The 370 unit project is located in the same county as Alderwood and Timberleaf and is subject to the same general climate conditions. A wood technology expert was retained by Maxim to test the performance of the hardboard siding on several properties managed by Maxim, including Alderwood and Timberleaf. On November 1, 1996, this expert presented a preliminary verbal report to Maxim which indicated that the physical characteristics of the hardboard siding at Alderwood and Timberleaf have deteriorated dramatically since the construction of the properties. The expert indicated that this deterioration is in stark contrast to the performance of real wood. In early September 1996, a structural engineer retained by Maxim to investigate the hardboard siding at several properties, including Alderwood and Timberleaf, reported that his preliminary findings indicated damage which on the surface does not currently appear to be major. However, the engineer has recommended destructive testing in view of the deterioration, since there could be significant problems which are not evident from the tests conducted to date. Maxim is in the process of obtaining proposals to conduct such destructive testing. The General Partner has instituted litigation on behalf of the Partnership as a result of this problem. Such litigation is similar to the litigation instituted in connection with the 370 unit project referred to above as a result of the same hardboard siding problem. In the 370 unit project referred to above, when the first evidence of deterioration was discovered, the problem did not appear to be major. The problem deteriorated rapidly, however, and is currently believed to involve structural and other damages, which exclusive of attorney's fees and other costs of litigation, could exceed $28 million. Discovery in that litigation has involved reviewing thousand of documents and will require the depositions of numerous experts. The General Partner is extremely concerned about the hardboard siding used on and the extent of damage caused to Alderwood and Timberleaf. Alderwood and Timberleaf and the 370 unit apartment project are different, and therefore exact comparisons cannot be made in evaluating the consequences and the resulting damages from the hardboard siding problem. As it is uncertain at this time what the degree of damage is and who will ultimately be liable for the cost, the General Partner has determined that it is in the best interest of the Partnership to continue the suspension of distributions. This will enable the Partnership to build reserves to pay for potential repairs and/or replacement costs. At this time, the General Partner cannot predict when cash distributions will resume. The reinstatement and level of future distributions will be dependent on several factors including, the degree of damage to the hardboard siding, determination of liability for potential costs and continued stabilized operations at the properties. ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations INTRODUCTION Alderwood and Timberleaf, which are located in Santa Clara, California, are apartment complexes with 234 units and 124 units, respectively. The properties commenced operations at completion of construction in December 1986. LIQUIDITY AND CAPITAL RESOURCES Cash generated by operations during the first nine months of 1996 was used to pay current operating expenses and debt service. During this period, the Partnership also used cash flow from operations to make cash distributions to the Limited Partners. In February 1996, the Partnership distributed $375,000 to the Limited Partners. Quarterly distributions have been suspended in order to accumulate working capital reserves until the degree of damage to the hardboard siding and determination of liability are known. See Note 3 To Financial Statements, Hardboard Siding, for a more comprehensive discussion of this matter. Each property has a non recourse note payable, secured by a first deed of trust. These notes accrue interest at 10.375%; interest is payable monthly at 6.25% on the principal balance, with the difference between the accrual rate and the pay rate added to principal. RESULTS OF OPERATIONS During the past year, Santa Clara County has continued to experience growth in the creation of new jobs. This growth contributed to a strong rental market and allowed the properties to increase their rental rates. In the third quarter of 1996, the properties marketed available units at rents which averaged $1,214 for one bedroom units and $1,495 for two bedroom units. Average occupied rent for the quarter was $1,185 and average occupancy during the quarter was 97% for both Alderwood and Timberleaf. As of September 30, 1996, Alderwood was 97% occupied and Timberleaf was 92% occupied. In the third quarter of 1995, the properties marketed available units at rents which averaged $1,002 for one bedroom units and $1,217 for two bedroom units. Average occupied rent for the quarter was $1,000 and average occupancy during the quarter was 97% for Alderwood and 99% for Timberleaf. As of September 30, 1995, Alderwood was 95% occupied and Timberleaf was 98% occupied. With the exception of increases in management fees and corporate housing expenses, which are directly related to the increase in rental activity, operating expenses increased by 4% during the first nine months of 1996 when compared to the first nine months of 1995. PART II: OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. Offers to Purchase Units An unsolicited tender offer for approximately 47.4% of the Units of Prometheus Income Partners ("the Partnership") at $405 per Unit was commenced on or about October 18, 1996 by a newly formed entity calling itself Prom Investment Partners, L.L.C. ("Prom"), which is an affiliate of Apollo Real Estate Investment Fund, L.P. As discussed in further detail in the Partnership's 14D-9 filing with the Securities and Exchange Commission ("SEC") on November 4, 1996, a Special Committee of the Board of Directors of the General Partner carefully considered the offer and determined that the offer was misleading, possibly illegal, and not in the best interests of individual Unitholders or the Partnership. Accordingly the Special Committee strongly recommended that the offer be rejected. Mr. Sanford N. Diller, a Director of the General Partner (as well as its beneficial owner, President and Secretary) agreed to make a tender offer for approximately 47.4% of the Units at $450 per Unit through a newly formed company, PIP Partners - General, LLC ("PIP General"). PIP General filed a Schedule 14D-1 with the SEC on November 8, 1996. The Special Committee's opinion was that all Limited Partners should retain their Units but those that have a current need or desire for liquidity should tender all, or a portion, of their Units to PIP General. On November 12, 1996, Prom amended it's offer with an amended offer price of $475. It appears that as a result of a lawsuit filed by the Partnership, many of the false and misleading statements in the original offer by Prom have been corrected. Accordingly, the General Partner on behalf of the Partnership, is not currently seeking to enjoin Prom from proceeding with its tender offer. Item 6. Exhibits and Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PROMETHEUS INCOME PARTNERS, a California Limited Partnership By PROMETHEUS DEVELOPMENT CO., INC., a California corporation Its General Partner Date: November 14, 1996 By: John H. Pringle __________________________ Vice President Date: November 14, 1996 By: Vicki R. Mullins __________________________ Chief Financial Officer EXHIBIT INDEX ------------- EXHIBIT NO. DESCRIPTION - ------- ----------- 27 Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Balance Sheets and the Statements of Operations filed as part of the annual report on Form 10-K and is qualified in its entirety by reference to such annual report on Form 10-Q. 3-MOS DEC-31-1996 SEP-30-1996 1,935 0 31 0 0 1,966 29,288 6,349 25,004 312 0 0 0 (178) 0 25,004 3,644 3,774 0 0 1,794 0 1,888 92 0 92 0 0 0 92 3 0
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